“It ain’t over ‘til it’s over.” — Option theory and why the race for the U.S. presidency isn’t over yet.
Trump is bleeding. Heavily. So far, so good. But when I saw people cheering that it’s supposedly over, I got the feeling that this might not yet be the case.
Fortunately I found a rational explanation for my gut feeling: option theory. Nassim Nicholas Taleb and Chris Arnade, both option traders, have pointed out the analogy between the presidential election and a binary financial option.
The outcome may be either “The Donald” or Hillary Clinton (binary). We’re still almost one month away from the election (time). The chances of either candidate winning have changed dramatically over the recent months, going up and down multiple times (volatility).
When volatility is high, projections of a future outcome converge towards 50:50. And no doubt, volatility is high in this election.
Not a fan of statistics? Still don’t believe the race isn’t over yet? Here are a couple of scenarios in which Hillary might not win:
- Assange releases compromising info on Hillary. He just announced his next release will get her arrested.
- Someone hacks Hillary’s computer and reveals things we didn’t know about. The DNC already got hacked this year.
- Trump resigns and is replaced by a more popular republican (Paul Ryan, Mitt Romney, even Mike Pence at this point).
- Any other of 1000 options we didn’t dare to imagine yet.
Does this seem improbable enough to call the race? I don’t think so. All I’m saying is: don’t party too early. Because the only one who seems to be right about all of this is Lenny Kravitz. He already predicted in 1991: “It ain’t over ’til it’s over.”